VanEck has announced the listing of the VanEck US Fallen Angel High Yield Bond UCITS ETF on the London Stock Exchange and Deutsche Börse Xetra.
The firm writes that this new ETF allows investors to invest in US dollar-denominated, high yield corporate bonds that were previously rated investment grade, also known as ‘fallen angels’.
“Many institutional investors are often forced by their investment mandate to sell bonds when they are downgraded below investment grade. Our strategy systematically buys these oversold and possibly undervalued bonds,” says Martijn Rozemuller, CEO at VanEck Europe. “Fallen angels have historically shown a higher likelihood of returning to investment grade status following a downgrade than the broad spectrum of high-yield bonds. This offers upside potential that investors can participate in with our ETF.”
The ETF’s investment strategy invests in sectors that experience frequent downgrades, as was the case for the banking sector in 2008 and the energy sector in 2016. Compared to broad high-yield bonds, fallen angels often exhibit higher credit quality with a higher concentration of BB rated bonds, the firm writes.
The physically replicating VanEck US Fallen Angel High Yield Bond UCITS ETF tracks the ICE US Fallen Angel High Yield 10% Constrained Index, which comprises of high-yield US dollar corporate bonds rated below investment grade that were issued at investment grade. These bonds must have been issued in the US domestic market and have a remaining maturity of at least one year.
The accumulating ETF is rebalanced monthly and has a total expense ratio (TER) of 0.35 per cent p.a.
